| The Research Assessment Excercise (RAE) is the method used within the United Kingdom to evaluate the quality of research occuring at institutions of higher learning, particularly universities.
The excercise occurs every four or five years (the last one took place in 2001), and around 5 billion pounds are distributed based on the rankings. Each department of an institution (history, mathematics, anthropology...) is marked on a scale of 1 to 5*, with 5* being the highest (implying that almost all research carried out in the department is of international significance) and 1 the lowest.
Pro's and Con's of rating systems
The excercise was designed "to enable the higher education funding bodies to distribute public funds for research selectively on the basis of quality. Institutions conducting the best research receive a larger proportion of the available grant so that the infrastructure for the top level of research in the UK is protected and developed."
To a certain extent, it achieves these aims admirably. However, as with all rating systems, institutions given a low rating soon begin to suffer, since no one wants to invest in a badly rated research team. This means that the lower-rated institutions tend to get worse, while the institutions of international standard have more funds than they know what to do with.
High ratings also attract more students, which can be self-defeating since the increased numbers mean less time spent with each student.
What the rating doesn't mean
The rating is given on the basis of published research and the academic standing of the researchers. It is not given on the basis of the teaching ability of those researchers. This is particularly important to remember for undergraduate students, since at the undergraduate level, good teaching is much more important than a good research team. If the team are really of an international standard, it is unlikely that they will be spending all their time teaching undergraduates.
Overall, the ratings can be a useful aid when choosing a university for postgraduate study, particularly if you know which gneral area you wish to research, but have no preference for a particular academic or university. The best way to tell if you will enjoy researching with a particular department is still to go and visit them, get to know the researchers, and find out first hand what studying or researching with them would be like. The rankings are useful mainly to give you a few pointers if you are not sure where to start. Like all ratings, don't take them too seriously.
The results of the 2001 excercise are available at http://www.hero.ac.uk/rae/Results/ | 
